The article argues that market prices provide far better incentives for invention and innovation than do government prizes. The question of prices versus prizes is important because the America COMPETES Reauthorization Act of 2010 has established a framework for government prizes. The article finds fundamental flaws in the deadweight welfare loss arguments for replacing market prices with government prizes. The article examines public prizes in comparison to the market for inventions in terms of efficiency in the allocation of inventions. The discussion shows how, in contrast to public prizes, prices in the market for inventions provide guidance for investment in invention, commercialization, innovation, and complementary inventions. The article demonstrates that replacing market prices with public prizes would substantially harm invention and innovation.
Available at: http://works.bepress.com/daniel_spulber/3/